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Will This Good Deed Go Unpunished, or Not, by the IRS

Back in January, Wesley Autrey did a selfless, good deed: He placed his life at risk to rescue a teenager who had fallen onto subway tracks in New York City. And in return, he's received cash, scholarships for his daughters, a trip to Disney World, theater tickets and other items. And now, at this post, tax professor James Maule of Mauled Again considers whether Autrey can expect something else, not quite as nice: a tax bill from the IRS.

The issue boils down to whether the benefits bestowed on Autrey are rewards or gifts, because rewards constitute gross income under the tax code. But how does one distinguish between the two? According to Maule, the IRS regulations that require inclusion of rewards in gross income do not define reward nor make distinctions between the circumstances under which they are offered and collected. So it's a judgment call -- and one where Maule opts to withhold judgment until he gets more information:

What would I do? Not much, at least until I get more information. Were the transferors acting according to long-standing "rewards" policies? Had they made previous transfers to other heroes and heroines? Did they attach conditions, such as appearances by Mr. Autrey in connection with the items? From what I can tell based on the limited information available, it appears that the factors suggesting the items are gifts outweigh, though slightly, the factors suggesting that what he received are rewards. I would also tell him that because it is a close call, getting additional information is essential. Ultimately, the decision is Mr. Autrey's to make, and it would be necessary to explain the risk of audit, the chances of success, and how interest and penalty computations enter into the risk evaluation. Yes, I'd put everything in writing once I was ready to render an opinion based on all the information I could grab.

Posted by Carolyn Elefant on February 5, 2007 at 06:10 PM | Permalink | Comments (1)

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